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It Doesn’t Grow On Trees

20 Jun

Why is our 15.7 trillion dollar national debt a problem? Doesn’t the government have the ability to print its own money to pay for it? Unfortunately, while the government does have the ability to print money, it can’t generate wealth.

Wealth consists of all our goods and resources and it is finite; there are only so many goods to go around. Money is a representation of wealth used as an easy method to trade our wealth. Money is only valuable for what wealth you can buy with it. Since the US adopted a fiat currency system, our money hasn’t been anchored by any concrete resource and the government can print as much as it likes, however, no matter how many dollars are printed, the overall wealth of our country will not increase. Printing enough money to cover our debt would more than double the amount of US dollars in the world, but this wouldn’t make us any better off since doubling the money wouldn’t double the quantity of bread, shoes, cars, or houses, and prices would quickly rise, or inflate, to reflect the new value of the dollar.

This is not just an academic exercise; other governments have already made the mistake of trying to print their way out of debt. Pre-WWII Germany tried to print its way out of debt, and it got to the point where it took a wheelbarrow full of currency to buy a loaf of bread [1]. In Zimbabwe just 5 years ago, the rate of inflation was so high that the prices in stores would double every 1.3 days, and the government, towards the end, was printing 100 trillion dollar notes [2].

Unless we want to find ourselves in the same situation, the only way to throw off our mountain of debt is to stop spending more than we produce. There is no easy fix.

100 Trillion Dollar Note

German children playing with bricks of currency

 

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Posted by on June 20, 2012 in National Finances

 

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